Apple Still Holds the Edge Over Microsoft

Almost two years ago, I took a look at Apple (AAPL - commentary - Cramer's Take) and Microsoft (MSFT - commentary - Cramer's Take), concluding that Apple was the likely winner. While I've made some boneheaded stock picks in my day, Apple is up 203% since that article vs. a 26% gain for Microsoft. But now it's time to look forward to see who will be on top two years from now.

First things first. Why did Apple win so big? Over the past couple of years, Apple's big story for investors consisted of the transition from the iPod to the Macs, which have been taking market share in a big way from Windows-based PCs. Plus, Apple has established itself as perhaps the savviest retailer out there period, and last year introduced the iPhone, launching it into the one-billion-plus-units-and-growing mobile-phone market.

For Microsoft, since that last column, the company saw the launch of its long-awaited Vista operating system, which didn't provide much excitement for anyone. It did appear to spark up uptick in PC sales among consumers, but enterprises have been very slow to convert given that its predecessor, XP works just fine, creating a tough hurdle for justifying an upgrade.

Microsoft did have success in video games with its Xbox 360 console, which took an early lead against the Sony (SNE - commentary - Cramer's Take) PlayStation 3 and has had many hits, including last September's Halo 3, which contributed to an upside surprise in that quarter. However, Microsoft has struggled in areas like Internet advertising, trailing behind Google (GOOG - commentary - Cramer's Take), which has spurred the company to pursue the acquisition of Yahoo! (YHOO - commentary - Cramer's Take).

So, today we have one expensive stock (Apple) and one cheap stock (Microsoft) battling it out for PC-industry supremacy. With all that has happened behind us, which one should investors go for now? For me, the answer remains Apple, which has significantly higher growth potential and a simpler business model that can't be disrupted by Microsoft.

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In keeping with TSC's editorial policy, Michael Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Comeau is a research analyst at TheStreet.com. In this role he performs stock analysis for TheStreet.com Breakout Stocks, and is also a regular contributor to RealMoney.com. Prior to his arrival at TSC in June 2004, Comeau worked as a Consultant to Toyota Motor North America, performing in-depth research on automotive industry issues, primarily in the areas of alternative engine technologies, competitive analysis and macroeconomics. His primary market interests include consumer technology, specialty retail, and small-caps. Comeau received a bachelor's degree in Finance from Brooklyn College, and has completed Level 1 of the CFA program.. He appreciates your feedback; click here to send him an email.